Comment: Can Britain compete in global semiconductor manufacturing?

The importance of semiconductor manufacturing across the globe can’t be overestimated. Valued at $627.6bn in 2024, the global semiconductor industry is at the forefront of AI and many other technological advances, which is expected to bring significant opportunities for economic growth in the future. The question is, can the UK capitalise on its position of strength to become a global leader in semiconductor manufacturing? 

In the long term, demand for microchips is expected to grow exponentially, driven by industry advancements in areas such as 5G and 6G, AI, EV’s and the Internet of Things (IoT). With demand increasing and manufacturing facilities starting up around the world, the UK needs to act now to strengthen its foothold in a fast-developing market.  

Even as things stand, the UK’s semiconductor manufacturing industry generated £9.6bn in economic value in 2022 and government studies suggest it’s created approximately 100,000 jobs combined within dedicated manufacturing companies and the wider economy. A sector study published by the government last year forecasts that revenues generated by the UK’s semiconductor industry could reach £13-16bn by 2030.  

Currently, the UK has a particular strength in areas such as chip architecture, design and innovation, and its impressive R&D capability is supported by some of the world’s leading universities in this space. However, the UK lacks manufacturing capability as well as an end-to-end supply chain to support it, which creates numerous obstacles that need addressing to entice manufacturers to invest, such as raw material availability which could hinder scaling.  

There are several challenges for the UK in becoming a mass producer of semiconductors, such as the high capital requirements of establishing state-of-the-art fabrication facilities and geopolitical risks that could impact the supply chain. Given these risk factors and high barriers to entry, building new facilities in the UK with the goal to compete with established low-cost country manufacturing facilities, especially within the standard Integrated Circuits product range, would be impractical as it’s unlikely to be a profitable strategy. Instead, the UK should follow scientific trends and concentrate on the manufacture of products where the competitive R&D and innovation advantage can be utilised, such as advanced AI Chips, IoT devices, RF semiconductors or other emerging chips where functionality and performance is often more important than cost.  

Supply chain vulnerability is another key concern. Even if manufacturing capabilities were expanded in the UK, there would still be a dependence on other countries for raw materials. The dominance in standard chip production and control over much of the global supply chain outside of the UK brings significant risks. Historically, China, for example, has prioritised its own companies during supply shortages, and this approach could put manufacturers in the UK and elsewhere at a disadvantage. If there is another prolonged shortage of semiconductors, the consequences would be felt across many industry sectors globally and undermine economic growth.  

For the UK to establish itself as a key player in the semiconductor manufacturing industry, it must focus on key areas of strength, instead of competing with established producers on lower margin products. By leveraging its R&D excellence in areas such as silicon carbide, the UK could target investment in fabrication facilities serving the compound semiconductor market. 

The UK’s National Semiconductor Strategy and sector study have sent clear signals to global key players in the industry that Britain wants to build on its position of strength in the global semiconductor market, attracting manufacturers to operate in the UK instead of elsewhere as they could benefit from the allocated government funding. However, the £1bn funding announced to date is a drop in the ocean compared to the funding provided by governments in the US and China. The sector study’s focus on the importance of R&D, as opposed to manufacturing capability, also suggests that the government is expecting to see success by strengthening already existing expertise rather than using it to leverage competitive advantage and going head-to-head with countries that are already leading players in a mass market.  

Collaboration is key to supporting the UK’s goal of becoming a world-leading producer of semiconductors. The sector study emphasises the need for government-backed incentives, such as tax breaks, to attract companies to establish manufacturing bases in the UK. Long-term policies and partnerships between industry, universities, and government will be required to build a robust semiconductor ecosystem. At the moment, the UK’s current policies and agreements do not provide enough certainty to attract global companies, so a great deal of regulatory and policy support will be required to foster long-term stability. For example, more needs to be done to strengthen partnerships between industry and universities to de-risk investments and therefore drive R&D and innovation further. 

Critical to establishing the UK as a leading manufacturer of semiconductors is optimising efficiency by harnessing the power of AI and other advanced technologies. Digital twin technology, for example, allows companies to explore ways to enhance production processes, and predict maintenance needs, without disrupting operations, resulting in a facility that is fully optimised.  

Automation is key to maintaining competitiveness. As labour costs in the UK are higher than in other, manufacturing-oriented, countries, it is important to leverage advantages in other areas, such as deep knowledge and experience of automation technology. There is also an opportunity to learn from other industries – for example, battery gigafactories operate with highly automated processes on high-volume, low-value production lines, while maintaining adaptability to adjust to evolving requirements. In this type of industry even a 2-3 per cent improvement in process efficiency can translate into a substantial competitive advantage. 

To become a world leader in semiconductor manufacturing, the UK must rethink its current investment strategy. Research on battery investment in the US found that for every dollar the government invested, the private sector invested $5.47. With similar logic applied, the UK Government can make a more informed decision on if the allocated £1bn is sufficient or not. 

As well as investing in the UK’s R&D strengths, there is an opportunity to create new capabilities and leverage technological know-how to build a world-class semiconductor manufacturing industry. Acting now could bring significant economic benefits in the future. However, to compete globally, industry, government and universities must work as one, sharing insights about the latest innovation trends and targeting investment, incentives and resources appropriately.  

Oskars Veberis, principal consultant, and Artur Ziewalicz, managing consultant, are specialists in industrial manufacturing at management consultancy, Vendigital